Americas Focus
GRETI 2010 includes the United States, Canada and Mexico, in addition to 10 countries in Central and South America, and the Caribbean. Real estate transparency across the region showed a distinct slowdown in movement between 2008 and 2010 with a score only marginally better than in 2008. Less improvement has been registered in the Americas than in either Europe or Asia Pacific with every country remaining within its 2008 transparency tier. Canada and the United States have remained the region’s only two Highly-Transparent (Tier 1) countries, and rank among the world’s most transparent markets. The Dominican Republic has the lowest transparency score in the region and is ranked 77th out of 81 markets globally.
A large gulf continues to exist between Canada and the United States and the other countries in the region, as no country in the Americas falls within the Transparent (Tier 2) level. Following the United States (ranked 6th globally), Chile ranks 34th globally and falls within the Semi-Transparent (Tier 3) level—where Brazil, Mexico, Argentina and Costa Rica can also be found.
Panama, Uruguay, Colombia, Peru, Venezuela and the Dominican Republic are characterised by Low-Transparency (Tier 4). Venezuela registered the greatest decline in transparency since 2008 as regulatory and legal changes, including weakened enforceability of contracts, negatively impacted on its overall transparency profile.
Few changes have affected transparency levels over the past two years in Canada and the United States. The global recession which started in the United States has kept transparency levels stagnant as the flow of information, business and capital has declined. Canada ranks as the world’s 2nd most transparent country, scoring just behind top-ranked Australia and performing well across all major transparency categories.
The United States has the highest score globally in the market fundamentals category, and also registers very highly in the performance measurement category. Market fundamentals data for the four core property types goes back to the late 1980s and the National Council of Real Estate Investment Fiduciaries (NCREIF) has produced a total return index for privately held, institutional real estate since 1978. Relative to performance measurement and market fundamentals sub-indices, the United States scores less well in the regulatory and legal, and transaction process categories. While interests are aligned between management and shareholders in the majority of REITs, there are instances where they are not aligned, which has compromised the country’s score in the regulatory and legal category. The transaction process sub-index score has been brought down by the availability of information on pre-sales, and the country has not been able to obtain a Highly-Transparent rating on lending regulations.
Countries in the Americas score the highest in the regulatory and legal category, followed by the transaction process. Having a solid regulatory and legal framework sets up most Latin American countries for future success on other real estate transparency metrics. Many countries in the region still, to a great degree, lack widely-available property market and investment performance data, an issue that continues to hinder transparency for the majority of countries in Central and South America. However, data collection is generally of a lower priority in these markets, where building strong legal and property rights is seen as a higher priority.
Latin American countries score the lowest in the performance measurement category. However, positive developments over the last two years, such as the introduction of real estate security indices in Brazil and the development of a new investment vehicle in Mexico, suggest Latin American scores in performance measurement will improve in time. These new indices and securities are absolutely necessary in the development of performance benchmarks for public and private real estate. Such measures are one hallmark of high levels of transparency in the real estate industry.
Chile stands out for its high transparency score, particularly in the regulatory and legal and transaction process sub-indices. Brazil continues its longer-term improvement in transparency although, like many other countries, its rate of improvement has slowed over the past two years. In particular Brazil has progressed in the performance measurement category due to the recent introduction of real estate securities indices. The region’s second largest economy, Mexico, has experienced very little change in transparency since 2008 with a minimal change in its overall score—it has been one of the hardest-hit economies in the Americas during the global recession. Argentina is again ranked the 4th most transparent country in Latin America but continues to have low scores in performance measurement and market fundamentals.
The outlook for real estate transparency in the Americas is likely to be boosted by the continuing underlying improvement in the economic and business environments of some of the larger Latin American economies. In particular, some of the first forays into private and public indices to benchmark investment performance should lay the foundations for future improvements in transparency across the Americas region. Transparency of market fundamentals is another area in which there is significant scope for improvement in the region. As in other continental regions, a key item to watch over the near-term, in the wake of the global financial crisis and recession, is for any potential impact on transparency through major regulatory change.